Source: Radio New Zealand
Unsplash/ Li Rezaei
KiwiSaver providers are expecting to see some members opt to keep their contribution level static, even as the default rate rises.
It was announced last year that the base contribution rate for KiwiSaver would lift from 3 percent to 4 percent by 2028.
The first stage of the increase, to 3.5 percent, takes effect from April 1.
But from 1 February, members can apply for a temporary rate reduction, which will keep their contributions at 3 percent this year.
Employers can then also match that reduced rate.
The temporary reduction can be stay in place for anywhere from three months to 12 months but people need to reapply to continue after that.
Dean Anderson, founder of Kernel, said he expected an increase in inquiries when the changes took effect in April.
“While the long-term benefits for retirement savings are clear – with analysis suggesting funds could last significantly longer in retirement – the immediate reality is a potential change in take-home pay for many.
“This is a particularly important concern for those on ‘total remuneration’ contracts, as they will see a double hit: their own contribution increasing and their employer’s increased contribution being deducted from their gross salary.
“I also strongly recommend that all employees, especially those working for smaller businesses that may not use automated payroll platforms, triple-check their payslips in April. Payroll adjustments for these new rates are mandatory, and manual errors are a real risk during this transition.”
A spokesperson for Generate said because people would ned to take action on the reduction through IRD, that might be where most of the impact was felt.
“We may get calls when people see their rate change and aren’t aware it was going to happen.”
Simplicity chief economist Shamubeel Eaqub said when changes happened automatically, they would often stick. “That’s the thing with auto-enrolment, you have to take action to opt out.”
Government modelling suggested the increase in contribution rates could make a material difference to a person’s retirement outcomes.
It said someone who had an income of $60,000 at 25, had two children, a year of parental leave and withdrew money at 30 for a house would end up with 26 percent more at retirement with the higher rate.
A high-income earner could end up with 28 percent more and a low income or part-time worker could end up with an additional 21 percent.
Both National and NZ First have pledged to push contribution rates higher if they are in Government again.
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
